Questions: Advice from most financial advisers states to spend no more than 28% of one's gross monthly income for one's mortgage payment, and to spend no more than 36% of one's gross monthly income for one's total monthly debt. Suppose a family has a gross annual income of 45,600. a. What is the maximum amount the family should spend each month on a mortgage payment? b. What is the maximum amount the family should spend each month for total credit obligations? c. If the family's monthly mortgage payment is 60% of the maximum they can afford, what is the maximum amount they should spend each month for all other debt? a. The maximum monthly mortgage payment should be b. The maximum monthly total credit obligations should be . c. The maximum amount they should spend monthly on all other debt is

Advice from most financial advisers states to spend no more than 28% of one's gross monthly income for one's mortgage payment, and to spend no more than 36% of one's gross monthly income for one's total monthly debt. Suppose a family has a gross annual income of 45,600. a. What is the maximum amount the family should spend each month on a mortgage payment? b. What is the maximum amount the family should spend each month for total credit obligations? c. If the family's monthly mortgage payment is 60% of the maximum they can afford, what is the maximum amount they should spend each month for all other debt? a. The maximum monthly mortgage payment should be b. The maximum monthly total credit obligations should be . c. The maximum amount they should spend monthly on all other debt is
Transcript text: Advice from most financial advisers states to spend no more than $28 \%$ of one's gross monthly income for one's mortgage payment, and to spend no more than $36 \%$ of one's gross monthly income for one's total monthly debt. Suppose a family has a gross annual income of $\$ 45,600$. a. What is the maximum amount the family should spend each month on a mortgage payment? b. What is the maximum amount the family should spend each month for total credit obligations? c. If the family's monthly mortgage payment is $60 \%$ of the maximum they can afford, what is the maximum amount they should spend each month for all other debt? a. The maximum monthly mortgage payment should be \$ $\square$ b. The maximum monthly total credit obligations should be $\$$ $\square$ . c. The maximum amount they should spend monthly on all other debt is $\$$ $\square$
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Solution

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Solution Steps

Step 1: Calculate Gross Monthly Income

To find the gross monthly income, divide the gross annual income (\$45600) by 12. \[ \text{Gross Monthly Income} = \frac{45600}{12} = \$3800 \]

Step 2: Maximum Monthly Mortgage Payment

Calculate the maximum monthly mortgage payment by multiplying the gross monthly income by 28%. \[ \text{Maximum Mortgage Payment} = \text{Gross Monthly Income} \times 0.28 = \$1064 \]

Step 3: Maximum Monthly Total Credit Obligations

Calculate the maximum monthly total credit obligations by multiplying the gross monthly income by 36%. \[ \text{Maximum Total Credit Obligations} = \text{Gross Monthly Income} \times 0.36 = \$1368 \]

Step 4: Maximum Monthly Payment for Other Debts

First, calculate the actual monthly mortgage payment by applying 60% to the maximum mortgage payment. \[ \text{Actual Mortgage Payment} = \text{Maximum Mortgage Payment} \times 0.6 = \$638.4 \] Then, subtract this value from the maximum total credit obligations to find the maximum amount for other debts. \[ \text{Maximum for Other Debts} = \text{Maximum Total Credit Obligations} - \text{Actual Mortgage Payment} = \$729.6 \]

Final Answer:

The maximum monthly mortgage payment should be \$1064, the maximum monthly total credit obligations should be \$1368, and the maximum monthly payment for other debts should be \$729.6.

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